Butterfly Labs Seeks Government Approval to Reopen Business

Stan Higgins
Oct 1, 2014 at 19:16 UTC
Updated Oct 2, 2014 at 17:59 UTC

butterflylabs

Attorneys for the Federal Trade Commission (FTC) and Butterfly Labs are allegedly holding talks that could lead to a possible reopening of the troubled bitcoin mining business.

The conversation, while still in its early stages, may allow Butterfly Labs to exit its previously announced court-ordered shutdown, The Kansas City Star reported.

Butterfly Labs was placed in temporary receivership by a US judge last week, a condition that was extended during a hearing on Monday when prosecutors made the case that both the company and its employees effectively profited at the expense of customers.

US District Judge Brian Wimes asked at the time if both sides could potentially agree to what he called a “business plan”. The media outlet suggested that both parties were reportedly enthusiastic about the idea, and discussions have been ongoing since the end of that hearing.

Jim Humphrey, an attorney defending Butterfly Labs, said that he was unable to comment at the time but voiced positivity about the future viability of the company.

Humphrey told the Star:

“I’m unable to comment on ongoing negotiations, but the parties continue to work together. We remain optimistic that we will be able to serve our customers again soon.”

Case continues to evolve

The discussions follow allegations levied by the federal regulator that Butterfly Labs defrauded customers and failed to deliver mining devices as promised. Further, the action by the agency, which polices anticompetitive or deceptive business practices, follows months of complaints against the company.

Documents released prior to Monday’s hearing allege that the company used equipment built for customers to mine bitcoins for extended periods prior to shipment.

Details about an inaccurate online mining profitability calculator and evidence that Butterfly Labs employees created paraphernalia that mocked customer complaints were also divulged in the documents.

Customer recourse

At this time, it remains unclear whether Butterfly Labs will reopen completely or partially under court control. Yet, the idea does represent a potential avenue for providing recourse to customers that together lost millions in both investment costs and future profitability as a result of not receiving equipment.

There are also questions about if and when customer refunds will be processed. As previously explained by FTC attorney Leah Frazier in an interview with CoinDesk, any refunds that were being issued were frozen as a result of last week’s court decision.

She remarked at the time:

“The accounts are frozen right now and the receiver is in control of the business. So, we can’t make any predictions on an ongoing basis as to the status of the refunds. A lot of that will hinge on the court’s decision.”

The order extended on Monday continues the asset freeze placed on Butterfly Labs. However, should the company resume operations, there could be provisions put in place mandating that some or all revenue be directed toward customer refunds.

Document signing image via Shutterstock

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